Selasa, 24 Oktober 2017


3 Important Considerations with a Home Equity Loan
Home equity loans are useful to homeowners who wish to release some of the built-up value in their home to put it to better use. Tapping the equity is something that should be done carefully without frivolous spending because the loan is often substantial and repaid over years. It’s certainly one of the most affordable loans to take out because it is secured by the value of the property and therefore carries less risk to the lender.

Let’s take a look at a few things to pay attention to when taking out a home equity loan.

Home Equity Loan vs. HELOC

There is some confusion over the difference between a home equity loan and a HELOC. Aren’t they the same thing? Actually, no. Let us explain.
A home equity loan is more like a traditional car loan because you take it out over an agreed period of time with scheduled payments until it is repaid. The lender issues the loan amount just once and the payment schedule is fixed because the interest rate and repayments are set at the time the loan is issued.

With a HELOC, it’s a bit like a line of credit for your home. Different amounts can be lent out to you based on your home’s value and any other debt present. Additional injections of cash are sometimes possible with a HELOC to top up available cash. Repayment periods can be 5-20 years.

The interest rate is often lower with a HELOC but with longer repayment periods it often ends up costing more to borrow. It’s also more likely to cause homeowners a problem because of the ease of getting overextended. HELOCs may also be withdrawn should the lender discover you’ve lost your job or for some other reason whereas once a home equity loan is issued, it’s done.

Understand the Payments Clearly

With home equity loan rates in Plymouth, MN you know what your costs will be to repay an additional loan on your home. Whether you wish to use the money to build a deck, install a swimming pool or refurbish the main living areas, knowing the costs of finance is an important consideration. The payments are fixed and knowable because the loan rates are established before taking out the loan. You go in with your eyes open.
The HELOC is different because there are different interest rates at various times and there’s some flexibility about when you repay. Sometimes loans on a HELOC can be repaid on minimum payment terms (like with a credit card) and then after the first decade, the HELOC closes down and full repayment is expected in the next decade or two. The flexibility is useful but for people who aren’t great at handling their finances, too much flexibility is difficult to handle.

How Much Loan Do You Really Need?

It’s easy to think about a home equity loan as free money. It’s money from the value of your home, so it’s really your money you’re borrowing, isn’t it? Well yes and no. While it’s true that you’re borrowing from the equity built up in your home (the different between its current market value and the mortgages outstanding on the property), you’re still having to borrow to access it. That brings with it additional risks of potential job losses or unexpected medical expenses causing reduced work hours or a change of career, etc.

Because of the aforementioned concerns, it’s a good idea to only borrow what you need and to use it for things that add value rather than that vacation to Disneyworld which you’ll be paying for over 5-10 years.
Home equity loans are great tools to help homeowners release some of the value in their real estate investments without being forced to sell up to get access to the cash. They just need to be well managed to get the most out of them.


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